With government officials set to brief lawmakers today on a proposed law change next year to allow the government's bond programme to issue Islamic bonds, fund managers and brokers have warned that developing the city into an Islamic finance hub will not be easy.

Analysts estimate the value of Islamic finance globally at US$1.3 trillion and expect that to double to US$2.7 trillion in 2017.

Financial Secretary John Tsang Chun-wah wants Hong Kong to capture some of that business, but analysts say that competing with Malaysia, Singapore and Britain as an international Islamic finance centre will be a challenge, pointing out that little progress has been made since Tsang pledged to develop Islamic finance in 2007.

The government plans to submit the Loans (Amendment) Bill in the first quarter of next year to allow it to issue the bonds, also known as sukuk, under the government bond programme. A law change is needed because a sukuk needs to comply with religious requirements.

In a paper given to legislators, the government said the planned sukuk issuance was "in response to the prevailing market conditions and needs" and it hoped that by taking the lead it would encourage other public or private companies to follow suit. It did not have a timetable for issuance or the size being considered.

"We expect that, given the shortage of highly rated sukuk in the international capital markets, an inaugural sukuk issuance originated by the government of Hong Kong SAR will … attract a new group of investors from the Middle East and other parts of the world to Hong Kong's financial platform," the paper said.

Christopher Cheung Wah-fung, the legislator representing the financial services sector, said it would be good to have more investment products in Hong Kong but competing with other Islamic financial centres would be tough.

"Malaysia, Singapore and Britain have developed their Islamic finance for many years and it will take time for Hong Kong to catch up," Cheung said.

The president of pension provider Principal Financial Group Asia, Rex Auyeung Pak-kuen, said turning Hong Kong into an Islamic finance hub was "a grand idea but it has a few challenges".

"Hong Kong has a geographic disadvantage to Kuala Lumpur and Singapore and a historical disadvantage to London," he said.

"While it is comforting to see the government being the issuer, one has to wonder what kind of sharia compliant investments Hong Kong has to offer."

Sharia law requires that a sukuk not be constructed as a loan but as partial ownership of assets or investment. It must not trade derivatives or invest in business related to pork, alcohol, tobacco or gambling, among other restrictions.

Mark Konyn, chief executive of Cathay Conning Asset Management, said a number of financial centres had raced to become Islamic bond centres, and Hong Kong needed to build a platform with sufficient turnover if it hoped to compete.

This article appeared in the South China Morning Post print edition as Lawmakers to hear briefing on Islamic bonds